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Thursday Watch

Late-Night Headlines
Bloomberg:
- Rule Blamed for Subprime Losses Unlikely to Change. Financial Accounting Standards Board Chairman Robert Herz said the standard-setting panel isn’t planning changes to a rule on valuing subprime-mortgage assets blamed for forcing companies to overstate losses. Companies that think investments will regain lost value should say so in regulatory filings, he said.
- Ambac Financial Group’s(ABK) AAA bond insurer credit ratings were confirmed by Moody’s Investors Service and S&P today after the company sold $1.5 billion in stock and equity units to cushion against losses.
- China’s industrial production growth slowed as exports cooled and the worst snowstorms in half a century closed factories in central provinces. Output rose 15.4% in January and February from a year earlier after gaining 17.4% in December.
- Ferraro Leaves Clinton Committee After Obama Remarks.
- Apollo Turns to Distressed Debt, Including LBOs. Apollo Management LP adapted to the leveraged-buyout freeze by investing $1 billion in distressed securities, including the debt of companies it already owns, founder Leon Black told investors.
- Target Corp.(TGT) said it’s in talks with an investment partner to sell about half of its credit-card loans for $4 billion.

Wall Street Journal:
- The US government will pay $666 million to 667 hospitals to settle a lawsuit over a change in Medicare reimbursement policies, citing a lawyer for the hospitals.

MarketWatch.com:
- US Mint looks to cut expenses by reducing metal content as rising metal price make coins costlier to produce than they’re worth.
- Has the bottom been seen? Monday may have marked end of the correction.

CNBC.com:
- Fast Money: Bears Outnumber Bulls; Bottom Signal?

NY Times:
- Woman in Spitzer Prostitution Allegation to Testify. Ashley Alexandra Dupre, the woman described in a federal affidavit as having a Feb. 13 hotel rendezvous with New York Governor Eliot Spitzer, appeared in court March 10 as a witness in the case against the operators of a prostitution ring.
- YouTube Coming to TV, With TiVo the Gateway.

BusinessWeek.com:
- The Search for the Killer iPhone App. Many developers are hard at work building tools for Apple’s(AAPL) popular phone.
- Ad Wars: Google’s(GOOG) Green Light. The official marriage of search- and display-ad titans Google and DoubleClick may take a while to pay off, but it deals a blow to Microsoft(MSFT) now.

CNNMoney.com:
- The 8 most fuel-efficient cars.

USA Today.com:
- E-book fans are flocking to the Net as Kindle sales catch fire.

Reuters:
- UK hedge fund Toscafund Asset Management LLP has approached Washington Mutual(WM), offering to participate in any consortium looking to recapitalize the bank.
- CME(CME) may announce deal with NYMEX(NMX) next week.

The Economic Times:
- Battered credit products are great bargains for brave investors. Reflecting how market pricing has gone beyond reality, the cost of European corporate bond insurance hit all-time highs last week, as measured by the iTraxx Crossover Index. The index has nearly quadrupled since March. However, corporate defaults in Europe remained low. Their number actually fell to a two-year low at the end of 2007.

Financial Times:
- India faces wave of defaults. India is beginning to experience its own version of the subprime crisis as banks tighten lending procedures to curb rising delinquencies, particularly in small unsecured personal loans.
- There must be no turning back on NAFTA. For the past few months, we Canadians had had our ears pressed to the border, listening with great interest as our American friends discuss the North American Free Trade Agreement.
- Clinton raises primary pressure. Democrat wants recounts in two states.
- The Short View: Chinese bubble. Anxiety about China has suddenly spiked.

TimesOnline:
- Hedge funds on the brink. The potential closure of six funds came as a leading private equity executive, who declined to be named, said that such funds were “snapping like twigs,” with one failing every day.

The Australian:
- ASX to foil short sellers.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (FST), target $62.
- Maintained Buy on (EXLS), target $28.

Night Trading
Asian Indices are -1.75% to -1.25% on average.
S&P 500 futures -.56%.
NASDAQ 100 futures -.42%.

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Earnings of Note
Company/EPS Estimate
- (PSUN)/.30
- (ARO)/.88

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for February is estimated to rise .8% versus a 1.7% gain in January.
- Advance Retail Sales for February is estimated to rise .2% versus a .3% gain in January.
- Retail Sales Less Autos for February are estimated to rise .2% versus a .3% gain in January.
- Initial Jobless Claims for this week are estimated to rise to 357K versus 351K the prior week.
- Continuing Claims are estimated to rise to 2835K versus 2831K prior.

10:00 am EST
- Business Inventories for January are estimated to rise .5% versus a .6% gain in December.

Other Potential Market Movers
- The (CVG) analyst meeting, (MSFT) analyst briefing, (TS) analyst day, (JAZZ) investor day, Bear Stearns Healthcare Conference and Lehman Brothers High Yield Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower, Weighed Down by Financial, Homebuilding and Airlines Shares

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In Play

Stocks Mostly Higher into Final Hour on Short-Covering, Less Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Alternative Energy longs, Software longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above-average. Investor anxiety is above-average despite large gains in the averages. Today’s overall market action is very bullish considering yesterday’s outsized gains. The VIX is rising to 26.5 and remains high. The ISE Sentiment Index is a below-average 117.0 and the total put/call is an above-average 1.07 today. Finally, the NYSE Arms is an above average 1.03. The 10-year swap spread is falling to 74.75 basis points over Treasuries, down from a high of 92.75 four days ago. Today’s mild market gains are even more impressive considering the 13 basis point drop in the 10-year yield, 1.2% drop in the dollar index and rise in oil. Redbook weekly retail sales rose 1.0% this week, the most since the first week of January and up from a .5% gain the prior week. While still at sluggish levels, this is an improvement during a time when consumer spending is supposedly weakening significantly. Also of note, while other emerging markets were strong overnight, the Shanghai Composite fell another 2.3% and is now down 33.5% from its record high hit last year. Nikkei futures indicate a -20 open in Japan and DAX futures indicate a -13 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering and less credit market angst offset record energy prices, ongoing economic pessimism and profit-taking.

Today's Headlines

Bloomberg:
- Eliot Spitzer resigned as governor of New York, brought down by allegations that he patronized a ring of high-price prostitutes.
- Investors should boost holdings of mortgage-backed bonds to benefit form a rally to follow the Federal Reserve’s decision to purchase as much as $200 billion in mortgage debt, according to Lehman Brothers(LEH). The Lehman analysts advised holders to move their US mortgage-backed allocation from 3% underweight to 5% overweight of their portfolios. “These plumbing maneuvers to promote greater liquidity, followed by another round of Fed easing on March 18, create a base for improved market sentiment,” Lehman analysts led by Jack Malvey in NY said. With spreads on US mortgage-backed securities at record highs, investors should take advantage of cheap prices before the improved liquidity that will result form the Fed’s move, the analysts said.
- The SEC may let borrowers bid on their own auction-rate securities amid a surge in failed auctions that have increased debt costs for state and local governments. The SEC is preparing “guidance” that would permit issuer bids as long as they disclosed “certain facts related to price and quantity.” The SEC “anticipates that the guidance should remove any hesitancy on the part of broker dealers and auction agents to allow municipal insurers to bid.”
- ING Groep NV’s real-estate unit, the world’s largest real estate investor, may invest as much as $1 billion in commercial mortgage-backed securities this year because the potential returns are so high. “There is enormous opportunity for CMBS investment,” said Bill Krauch, head of global marketing. The difference in yield between US Treasuries and commercial mortgage-backed debt is now five times wider than in the 1998 Asian financial crisis, Krauch said.
- GO Capital Asset Management BV blocked clients from pulling cash from its Global Opportunities Fund, at least the seventh hedge fund in the past month forced to take steps to protect itself from market fluctuations.
- Drake Management LLC, the NY-based firm started by former BlackRock Inc.(BLK) money managers, may shut its largest hedge fund after a 25% decline last year, according to a letter to investors.
- Thornburg Mortgage(TMA), the “jumbo” home lender struggling to meet margin calls, more than doubled for a second day after Bear Stearns(BSC) upgraded its rating and said chances of survival have improved.
- Dong Energy A/S plans to spend as much as $10.3 billion on oil and wind-power projects in the next three years, citing CEO Anders Eldrup. The company is embarking on “historically big” investments in oil and gas exploration and new wind turbines.
- Bob Parker, deputy chairman of Credit Suisse Asset Management, says stocks ‘cheap’, commodities to decline. (video)
- Stock investors in the world’s biggest markets are growing more convinced equities will fall in the next six months, a survey of Bloomberg users showed.
- Apple Inc.(AAPL), striving to lure customers away from the BlackBerry e-mail device, said more than 100,000 developers have downloaded the kit to make programs for its iPhone since last week.
- Investor pessimism about US stocks surged to the highest since September 1998 last week, NY-based Investors Intelligence said. The proportion of newsletter writers who were bearish increased to 43.3% from 36.6% the prior week. Optimism fell the most on record to 31.1%.
- Freddie Mac(FRE), the second-biggest source of money for US home loans, said it has no plans to raise capital in a way that would dilute shareholder equity.
- Bear Stearns(BSC) rose the most in seven weeks in NY trading after CEO Schwartz denied again that the securities firm faces a cash shortage, saying the company’s “liquidity cushion” is sufficient to weather the credit-market contraction.
- OPEC may earn $927 billion from oil exports this year, the US government’s EIA said, raising its estimate 9%.
- The risk of US companies defaulting is falling, according to traders of credit-default swaps. Contracts on the Markit CDX North America Investment-Grade Index of 125 companies in the US and Canada dropped 1.5 basis points to 175.5, according to Phoenix Partners Group.

Wall Street Journal:
- US Real Estate Companies Turn to Mideast Investors.
- The fall of New York Governor Eliot Spitzer holds many lessons, and the press will surely be examining them in coming months. But don’t expect the press corps to delve into the biggest lesson of all – its own role as his enabler.

NY Times:
- Obama, Clinton Argue Over How to Define Winning.
- Aetna Inc.(AET), the third-largest US healthy insurer, plans an online service that uses a patient’s medical history to answer questions on treatments and symptoms, citing a company vice president.
- Spitzer Allegations Leave Women’s Groups ‘Betrayed.’

LA Times:
- Army to Turn Trash Into Power in Iraq. The water bottles, plastic foam plates and other trash discarded by American troops in Iraq’s mess halls may soon be serving double-duty – as an unlikely power source to illuminate barracks and power up laptops.

CNNMoney.com:
- Junked stocks that could fly again. The mortgage crisis has relegated the stocks of once high-flying industries to Wall Street’s scrap yard. But some of them may be ready to take off again.

NY Observer:
- ‘Money Honey’ Indeed! Maria Bartiromo Sells Book to Crown At Auction For About Half a Million.

Financial Times:
- Citadel Investment Group, the $20 billion Chicago hedge fund, has hired Kaveh Alamouti from rival Moore Capital to spearhead a push into global macro, the booming hedge fund strategy involving free-wheeling bets on currencies, markets and interest rates.

Bear Radar

Style Underperformer:

Large-cap Value -.22%

Sector Underperformers:

Airlines (-6.1%), Coal (-4.3%) and Energy (-1.26%)

Stocks Falling on Unusual Volume:

HUM, FTO, TTES, VIP, BLUD, GPOR, BABY, LCAPA, KLAC and UAUA